What the 2026-27 Budget Changes Mean for Property Investors

12 minutes ago

4 min read

What the 2026-27 Budget Changes Mean for Property Investors

The negative gearing and capital gains tax changes announced in May's Federal Budget are no longer proposals. They passed Parliament in June, are now law and start on 1 July 2027.

There has been plenty of noise about what this means. Here is the plain-English version: what changed, who it affects and what is worth doing before the new rules kick in.

What actually changed

There are two main changes, both starting 1 July 2027.

• Negative gearing is limited to new builds. If you buy an established residential property after 7:30pm AEST on 12 May 2026, a rental loss can no longer reduce the tax on your salary or other income. The loss can only be offset against income from residential property, including capital gains, and anything unused is carried forward to future years.

• The 50% capital gains tax discount is being replaced. For individuals, partnerships and trusts, the discount makes way for cost base indexation (your purchase price adjusted for inflation) plus a 30% minimum tax rate on real capital gains. This applies to shares and other assets too, not just property.

The full detail is in the Budget tax explainer and the ATO summary of the new law.

Who is affected and who isn't

This is where most of the confusion sits. Where you land depends on when you bought and what you bought.

• Already own an investment property, or signed a contract before Budget night: you are grandfathered. You can keep negatively gearing that property for as long as you hold it.

• Bought an established property between Budget night and 30 June 2027: you can negatively gear until 30 June 2027, then the new rules apply.

• Buying an established property from 1 July 2027: rental losses can only be used against residential property income.

• Buying an eligible new build: you keep full negative gearing and can choose either the 50% discount or indexation when you sell.

Your own home is still exempt from capital gains tax. Commercial property and super funds, including SMSFs, sit outside the negative gearing changes.

SMSF investors should also note a separate change that came through with the same legislation. Since 10 August 2026, SMSFs can no longer set up new borrowing arrangements to buy residential property. Existing arrangements are unaffected.

What counts as a new build

Not every new property qualifies. The property has to genuinely add to housing supply. That generally includes:

• an apartment bought off the plan

• a home built on vacant land

• a knockdown where one house is replaced by more dwellings, such as a duplex

It does not include a one-for-one knockdown rebuild, an extension, a renovation or a granny flat added to an established property. Only the first buyer gets the benefit, so anyone who buys that property later misses out.

A word of caution. A tax benefit is not a reason to buy on its own. New builds can carry a developer premium, compete with plenty of similar stock nearby and grow more slowly than established property. The fundamentals still matter more than the deduction.

What this means for the market

Treasury's own modelling expects a small and temporary slowdown in price growth, roughly 2% less growth over a couple of years compared to no change, and only a minor effect on rents. It also expects around 75,000 more owner-occupiers over the next decade.

In practice, we expect investor behaviour to shift in three ways: more interest in eligible new builds, more focus on cash flow and less reliance on tax deductions to make the numbers work.

That last point is the big one. When a rental loss can no longer reduce your tax on wages, the property's rental return matters far more. That is why more investors are looking at building a portfolio that covers its own costs rather than one that needs topping up from their pay every month.

Established property in a strong location still has a place in plenty of portfolios. It just needs to stack up on its own merits, and the right mix of property types will look different for every investor.

What to do now

• Know where each property sits. Check whether each one is grandfathered, transitional, an eligible new build or affected. Keep your contract and settlement dates handy.

• Rerun your numbers. For any purchase from here, test the cash flow without assuming the loss reduces your tax on wages.

• Get your records in order. If you sell after 1 July 2027, the gain is split into before and after that date, using either a valuation as at 1 July 2027 or an ATO estimate. Keep purchase costs and improvement receipts together.

• Watch for the next round of detail. Treasury has consulted on a second stage of legislation covering exemptions for some affordable housing, NDIS housing and build to rent. Some of the finer rules are still being finalised.

• Talk to your accountant before you buy or sell. Structure, timing and ownership matter more now than they did before.

Our View

These are the most significant changes to property tax settings in decades, but they are not a reason to panic. Existing investors are largely protected, and the transitional rules were designed so there is no rush to buy or sell before a set date.

What has changed is how future purchases should be assessed. Investors who do well from here will buy property that works on its own numbers: a solid location, sustainable holding costs and a clear plan for growth or income. The tax benefit should be a bonus, not the strategy.

If you want to understand how the changes affect your portfolio or your next purchase, book a call with us and we will work through your numbers with you.

This article is general information only and does not take into account your objectives, financial situation or needs. It is not financial, tax or legal advice. It reflects legislation as at October 2026, and some details may change as further legislation is finalised. Seek independent professional advice before making investment decisions.